Friday, March 15, 2013

Sometimes inactivity is good activity

One must be thinking what a lazy title this is. Is stocks investment something which one must always be on their toes with? Can a person be away and be switching off his trading screen for a month? What if during the end of February period where most companies would be announcing their year end results - some company had unexpectedly posted bad results? Market collapse due to ever extended announcements of general election?

I was away for some 20 days. Most of the time, I was not able to trade or even check out relevant news. In fact, in some places I have little internet access and not much time to even access the net. Along with me, there was no notebook but only an iPad.

My position was full for the fund which I have posted on the net as well as other positions that I have. Would me being away affect how I am going to trade my stocks. Would relinquishing some of my positions be better than keeping them as it is? I actually, viewed through the position that I had before I was about to be away - none of them are for the short term. I would not be very concern of short term impact.

Upon me being back in Malaysia, as I have updated my position, it in fact looks even better. This is the first time, it has exceeded 100% return. Several of the companies are continually doing well.

When I read some of the comments by short term traders in their forums, they are uncertain of what holds for tomorrow. They are afraid of spikes especially towards the downtrend in a market place where Bursa does not allow short sell. My question is why put yourself in that position? Why do you need to be on the trading screen all the time? Why do you want to second guess how the major shareholders are going to do with its stocks.

Upon me away, it was lessons time as well. Stocks trading is one thing, continuous lessons on business is another thing. In Spain, I was able to notice that Zara is doing very well. Inditex SA (company that owns Zara), the stock that its major shareholder, Amansio Ortega (together with family) is trading on has done very well over the last one year. Zara is a Spanish based company - Spain together with Italy in Europe are facing a severe recession with especially large unemployment of more than 20% (Spain). But yet the largest shareholder of Zara is now the third richest person in the world surpassing Warren Buffett. How is that? Zara, a mid range clothing company is upping its ante by being very much close to market trend. Due to its ability to change to what the market wants in a short period of time, it is now the largest clothing retailer in the world. This shows that it could have possibly been taking market share from other competitors especially the luxury range whom have now been concentrating on China nowadays.

Zara, in fact, as I can notice, it is doing extremely well in Europe as well as in emerging markets. I am not a fashion enthusiast but I am a business enthusiast - and I can see how Zara has managed to put itself into - despite the slowdown in the in some of the market it is in. By European standards, Zara's line of products are not expensive - and yes it is now cheaper to buy in Europe than buying them in Malaysia.

Anyway, during the period I was away. I was right on Patimas, Asia Media. I was partly wrong on Tradewinds Plantation as the major shareholder did improve on the offer to RM5.00 although it seems like at that price, it is still way below the NAV. YTL Power seems to be dropping further as investors are wary of its future in the Malaysian IPP market. However, I would think if it drops further, YTL Power's overseas contribution should be attractive enough for the stock. Airasia announced a surprised dividend and it seems to be doing more and more deals overseas - India and Philippines. Airasia, as I have suspected is aggressive.

And I am right as well on Astro - it continues to disappoint as it should be. IHH seems to be doing well, but it is largely due to EPF buying as I would continue to think. I still think that it is a good stock but not good enough at its current price it is trading at. I am happy to see that Time Dotcom is doing well, so is Jobstreet.

10 comments:

We are glad to have you back. 100% absolute return in two years when the index is literally flat is remarkable.

I wish to discuss with you about your top performer, DKSH. It is indeed a very well managed company that no analysts bother to cover. There is so much to learn from its annual reports given the high level of public disclosure. What do you think of DKSH's business model in the long run in terms of the competitive advantages and possible threats?

SP Setia has announced its succession plan yesterday which I think you might have already noted. Apparently, the number 2 guy at the company, Dato Voon is taking over the CEO position in 2015. To be honest, I am pretty puzzled by the move. The whole episode just makes me feel that PNB wants to kick TSL out of the company. Both TSL and DV are at almost the same age of 54. Of course, PNB paid a heavy price for retaining the core management team at SP Setia.

Padini announced their latest quarterly earnings while you are vacationing too. The margins are indeed falling at the local fashion retailer. The management announces earnings will be lower for the financial year. I must admit that I am a poor market player, despite the lower net profit recorded for the quarter, Padini's share price has only gone up in recent trading days.

I've just started following your work. Excellent as always. Thank you for sharing your thoughts.

I wanted a your input on a few things.

1. Inch Kenneth Kajang PLC. What is your take on a company doing such a large, consistent share buyback (To the point, that the buybacks alone are supporting the share price).

Why not just pay a special dividend, and get it over with? - We could discuss KSENG here too.

2. Power Root. Is there any stopping this company becoming a future Dutch Lady or Nestle?

3. AirAsia. There has been much made of their aircraft commitment. It is sizable - 65 billion to be exact. How is this capacity going to be utilized? And shouldn't cash be used to pay down debt before dividends? (I'm not complaining)

4. Classic Scenic. I've not heard anyone discuss this picture frame maker. But they have consistently been rewarding shareholders, and have a strong balance sheet.

On DKSH, I think the biggest threat is its ownself. While it is doing well, it has at one point of time done badly. The biggest problem for this company is managing the collection and margin. There is always a need for foreign companies to use its service especially the mid-sized to smaller ones. From there, the threat as possible be is companies distributing themselves - but as I would think, there would always be newer companies who would be using their services.

As for SP Setia, this one is totally different. I guess TSL wants out and he got a decent deal with the shares pegged at a price despite the free shares distribution to staffs and management. The free shares as you can see is definitely partly for the new CEO to be Datuk Voon. The current management have no power to wrest the offer for shares by PNB and I think this is a political move, which I do not want to elaborate much. If you can see further, 3 major national level property companies had become very active in Penang - SP Setia, IJM and E&O. well E&O is not national level, but they are pretty strong in Penang. E&O is now controlled by Sime. SP Setia by PNB. At one point of time IJM was close to be merged with MRCB. There must be strong reasons.

On Padini, I am too not a market player. I have long time resigned on predicting where the share prices would be heading and concentrate on quality and value.

1. if the buyback is to support the share price, I do not support the idea. One of the ways where companies do large buybacks but yet maintain the share price is buying blocks in off markets - such as the one by Jobstreet. I believe I read somewhere that Inch Kenneth is undervalued by NTA. Well, that does not mean the company should overdo its buyback. Once the buyback is stopped, what then?

Special dividend on the other hand is different to the extent that if the share price is undervalued, sometimes buyback is a better option.2. Power Root has quite many competitors - I do not think it is in the realm of Nestle or DLady.3. Airasia. You are right, maybe the company should not be over eager to pay dividend.Debt is still large, but thats the nature of an airline business - managing debt vs cash. There are no large airlines without debt.4. Classic Scenic - looked at it once. does not understand the picture frame business that well but the financials look promising and attractive.PeterLabs- Believe this is a pretty new IPO company. Let it simmer for a while before we try buying the company. Will need to understand the industry and business though.6. Formosa Prosonic - have yet to look at the company but I believe that most companies in this space have been trading at low PEs. I have to admit have to look further but if the company has the excess funds, should not stop itself from paying generous dividends.

Although I'd like a special dividend (for purely selfish reasons), you are right in that it is better use of a companies funds to buyback an undervalued asset - in this case shares (with much potential upside) - hence gain.

Power Root is interesting. Don't know many players in this space using Tongkat Ali (hence the Power Root name) and Ginseng in their coffee formulations. They also have a strong market acceptance of their product in the middle east (having grown exports quite well). Hmmm.

I'm also invested in CSCENIC and FPI. To me its worth giving it a go. It seems that sometimes you do have to look a bit harder in Bursa to find some smaller counters with a good margin of safety, a good track record of dividends, low gearing - solid financials. Albeit with some liquidity issues - low volume.

I still think that SP Setia is one of the better developers in Malaysia if not the best. If property sector continues to be robust, it can be accumulated - I always believe in moderation as property now is on the high side.

Disclaimer

The content here should serve as the opinion of the writer rather than as an advice to buy or sell. You should do your own research and/or seek expert's advice when doing your investments. Any decision that you made is your own and the author should not be held accountable.